RIBA

Case Study

Presented To: Sir Rahat Aziz

Business Law Faculty - IoBM

By: Mohammad Owais (ID # 9563)

P ublic policy is an attempt by the government to address a public issue. The government,
whether it is city, state or federal, develops public policy in terms of laws, regulations,
decisions and actions. These are the three parts of public policy-making: Problem, players
and the Policy. The constitution of Pakistan recognizes the public policy as its principles for
policy making, which lead to recognizing Islam and Islamic law as the supreme guidelines.

The constitution of Pakistan was passed by National Assembly of Pakistan on 10 April, 1973.
The president of Assembly authenticated it on 12 April. Since the constitution recognizes Islam
as the ultimate law, all the article in the constitution are in conjunction with the Shariat and no
law is made or can be made against Islamic Shariat. Similar is the case with Interest (Usury,
Riba). Regarding riba the following Policy is clearly stated and included in the constitution of
Pakistan.

Chapter 2, Principles of Policy

Article 38: Promotion of social and economic wellbeing of the people.

Clause (f): The state shall eliminate riba as early as possible.

Even after 37 years have passed after the constitution was and the clear verdicts from Federal
Shariat court in 1992, and Supreme court in 1999 against riba and clearly mentioning the Interest
based system currently being followed in the banking system is riba and hence forbidden
(Haram):

“Judgment dated 14th November, 1991 of the Federal Shariat Court was affirmed and
it was declared that Riba in all its forms and manifestations was prohibited by the Holy Quran
and Sunnah”

Still no prominent actions on individual, community or governmental level have been taken to
eliminate riba. According to the judgment passed by Shariat Appellate Bench of Supreme Court
following declarations were made:

“(10) The following laws being repugnant to the Injunctions of Islam shall cease to have effect
from 31st March, 2000: -

1. The Interest Act, 1839. 5. The Sindh Money Lenders

Ordinance, 1960.

2. The West Pakistan Money Lenders 6. The N.W.F.P. Money Lenders

Ordinance, 1960. Ordinance, 1960.

3. The West Pakistan Money Lenders 7. The Balochistan Money Lenders

Rules, 1965. Ordinance, 1960.
4. The Punjab Money Lenders 8. Section 9 of the Banking
Ordinance, 1960. Companies Ordinance, 1962.

(11) The other laws or the provisions of the laws to the extent that those have been declared to
be repugnant to the Injunctions of Islam shall cease to have effect from 30th June, 2001.”

After viewing all these facts one might think the Riba must has been substantially eliminated or
some serious efforts must be there to lay down the infrastructure as outlined by the Supreme
Court, after such a detailed judgment, but on the contrary it has to be mentioned sadly the
Interest based banking is still very much intact and working freely in Islamic Republic of
Pakistan. Although the whole financial system seems to be dependent on such banking system,
for the purpose of this study 3 examples have been discussed, on individual, community and
governmental level each respectively.

For breach of this law on individual basis the example can be cited of credit cards, most of the
people using banking services are using credit cards and a credit card user know, no matter how
much care is taken once in a while late payment charges do get applies, which is a form of Riba.

On community basis most of the large manufacturing concerns and services companies, be it
textile mills or rice processing mills, sugar mills or cement plants are financing their expansions
on credits from financial institutions on terms of interest, which is Riba again. The financial
managers and officers in charge of asset management and cash management are taught the
literature and economics of capitalist non-Muslim society, which has its foundations on interest
and time value of money, how could our managers having that education think on different lines
and apply Islamic Financial systems.

On governmental level, there is no more a greater example than the reality that 25% of our fiscal
budget expenditure is on debt servicing, our Governments are not ready to finish the Fiscal
deficit or the trade deficit and every year to finance its leisure and luxuries borrows hefty
amounts from banks, financial institutes and agencies to cover the fiscal deficit created due to
them. If Our Government was serious and was not violating the article of constitution, then
where is a genuine effort from them to eliminate Riba as mentioned, and as clearly interpreted by
the Apex court.

An alternate Islamic banking system had been started and adopted by banks, but their neutrality
and independence from the “classical” system still remains a question. Even if we do consider
them appropriate, still the constitution and our public policy require elimination of Riba
(Interest), not a parallel Islamic system for those who want to choose between the two. This
would mean we are allowing the traditional banking system to flourish alongside infant Islamic
banking whose maturity heavily depends on gaining market share, but if these commercial banks
keep on operating that day is not near when this system would be able to sustain its self.